Money Management

It’s fair to assume that few people enjoy filing taxes. If you’re someone who would rather do anything else, here’s how to make it easier on yourself. 

Whether you’re anxious to get your 2023 tax returns filed or have an annual tradition of dragging your feet, you can make the entire process easier. By breaking up the labor-intensive part of gathering documents, you’ll be set and ready to go when tax time rolls around. Here’s an easy way to approach it step by step and make it all work.

RELATED: Best Tax Software

To start, you’ll need to decide when you want to begin. That’s “Week 1.” To help you determine the best time to get started, keep in mind that tax season officially begins on Jan. 23, 2024. That’s approximately 10 weeks from now.

Week 1: Personal information

While you probably remember most of this information off the top of your head, quickly run through the list and gather any information that’s not fresh in your mind.

You’ll need your Social Security number or tax ID number.Make sure you know your spouse’s full name, Social Security number or tax ID number, and their date of birth.If an Identity Protection PIN has been issued to you, your spouse, or a dependent by the IRS, have that number ready.Gather your bank account routing and account numbers if you want to receive your refund via direct deposit or pay a balance due.If you have foreign reporting and residency information, make sure you have it available.

Week 2: Dependent information

If you have dependents, this is the information you’ll be asked to provide:

Birth dates and Social Security numbers or tax ID numbers for each dependent.Income of dependents.Income of other adults in your home.Child care records, if applicable, including the provider’s tax ID number.If you’re a noncustodial parent who plans to claim a child as a dependent, you’ll need a Form 8332 indicating that the child’s custodial parent has released their right to claim the child.

Week 3: Income, part 1

We’re breaking up sources of income into two sessions due to the quantity of information needed. However, as you run through the list, you’ll find that some of it does not apply to your situation.

Employed by someone else

Your W-2

Unemployed for any part of 2023

Your 1099-G (unemployment income)

Self-employed

Forms 1099, Schedule K-1, 1099-MISC, or 1099-NECRecords of expenses, including credit card statements, check registers, and receiptsIn-home office expenses, if applicableBusiness-use asset depreciation information, including cost and date asset was placed in serviceForm 1040-ES, record of estimated tax payments made

Rental income

Record of incomeRecord of expensesRental asset information for depreciation, including cost and date placed in serviceForm 1040-ES, record of estimated tax payments made

Week 4: Income, part 2

If you have diverse sources of income, here are the other forms and information to locate.

Retirement income

Income from Pension, IRA, and/or annuity (Form 1099-R)Social Security, Railroad Retirement (RRB) income (Form 1099-R)Traditional IRA basis (the amounts you’ve contributed to the IRA that have already been taxed)

Savings & investments or dividends

Interest and dividend income (Forms 1099-INT, 1099-OID or 1099-DIV)Income for the sale of stock or other property (Forms 1099-B or 1099-S)Health Savings Account and long-term care reimbursements (Forms 1099-SA or 1099-LTC)Record of estimated tax payments you’ve made (Form 1040-ES)Dates of acquisition, as well as records of your cost or other basis in property you sold.Expenses related to investmentsTransactions involving cryptocurrency

Week 5: Income and losses

This should be a relatively easy week, primarily because some of these sources of income and loss will not apply to you.

Form W-2G, gambling incomeJury duty incomeHobby income and expensesForm 1099-K, payment card and third-party network transactions1099-MISC, royalty incomeTrust incomePrizes and awards2022 state tax refundRecord of alimony you’ve paid or received, along with ex-spouse’s full name and Social Security numberAny additional 1099s received

Week 6: Deductions, part 1

This is the fun part — finding deductions that reduce how much you owe. Deductions are a big category, so we’re breaking it down.

Charitable donations

Records of non-cash donationsThe number of miles driven for either charitable or medical purposesCash amounts donated to houses of worship, schools, and charitable organizations

Home and vehicle

Mortgage interest statements (most commonly, Form 1098)Records of real estate and personal property taxes paidReceipts for energy-saving home improvements you’ve madeElectric vehicle informationAny other 1098 series form received

Week 7: Deductions, part 2

And here are more deductions for you to take.

Medical expenses

Amounts you paid for doctors, dentists, and hospitalsAmounts you paid for qualified insurance premiumsForm 1095-A, if you enrolled for insurance through the marketplace

Child care costs

Child care costs paid to a licensed daycare center or family daycareFees you paid to a babysitter or child care provider for your child under 13 while you workedCare expenses paid through a dependent care flexible spending account

Week 8: Deductions, part 3

Unless you’re a student or educator, this will be another easy week for you.

Educational expenses

Form 1098-E, student loan interestRecords of scholarships or fellowships you receivedReceipts itemizing qualified educational expensesForm 1098-T from educational institutions

K-12 educator expenses

If you’re a K-12 educator, you’ll want to gather receipts for classroom expenses.

Week 9: Deductions, finishing up

Once you’ve organized the following documents, you’re good to go.

State and local taxes

State and local income tax paid (not associated with income paid on wages)Sales tax paidVehicle sales tax paidPersonal property tax paid on vehicles

Retirement and other savings

HSA contributions (Form 5498-SA)IRA contributions (Form 5498)

Federally declared disaster

Insurance reimbursementsRecords of repair or rebuilding costsRecords supporting property lossesFEMA assistance records

Whether you fill out your tax return yourself or hand it off to a professional, gathering the information you’ll need ahead of time is sure to reduce tax-time stress. It’s also a great way to begin a file for each category, a practice that will ultimately make it easier to keep your 2024 tax records organized.

Alert: highest cash back card we’ve seen now has 0% intro APR until 2025

If you’re using the wrong credit or debit card, it could be costing you serious money. Our experts love this top pick, which features a 0% intro APR for 15 months, an insane cash back rate of up to 5%, and all somehow for no annual fee.

In fact, this card is so good that our experts even use it personally. Click here to read our full review for free and apply in just 2 minutes.

Read our free review

We’re firm believers in the Golden Rule, which is why editorial opinions are ours alone and have not been previously reviewed, approved, or endorsed by included advertisers.
The Ascent does not cover all offers on the market. Editorial content from The Ascent is separate from The Motley Fool editorial content and is created by a different analyst team.The Motley Fool has a disclosure policy.

 Read More 

Withdrawing funds from an IRA without a plan is a choice you might sorely regret. Read on to see why. 

If you’re heading into retirement with a healthy IRA balance, you’re in great shape. Many people, unfortunately, are forced to kick off retirement with no savings at all and live on Social Security income alone, which doesn’t tend to be all that generous. So if you managed to save and invest money well throughout your career, you may be approaching retirement with hundreds of thousands of dollars to your name — or more.

But one thing you don’t want to do is mismanage the savings you’ve amassed. And if you don’t take the time to establish an IRA withdrawal strategy, you might sorely regret it down the line.

When you put yourself at risk of running out of savings

In a recent Northwestern Mutual survey, 43% of respondents said they were worried about outliving their savings. But one thing you should know is that it doesn’t matter if you’re starting retirement with $100,000 in savings or $1 million. You run the risk of depleting your nest egg in your lifetime regardless of your starting balance if you don’t manage your funds wisely.

To that end, it’s really important to establish a withdrawal strategy early on. If you don’t and instead just pull money out of your IRA whenever you want, you might eventually whittle your balance down to $0. And if you do that, you might then be forced to live only on Social Security. The average monthly benefit the program is paying right now is $1,848. Does that sound like enough to live on? Probably not.

Granted, benefits are subject to cost-of-living adjustments over time. The point, however, is that you generally don’t want to be forced to live on Social Security alone. If you run out of savings during retirement, that might happen. And from there, you might have to seriously cut your spending at a time in life when you really don’t want to do that.

What’s the right withdrawal rate for you?

For years, financial experts swore by the 4% rule in the context of retirement plan withdrawals. The rule had you starting out with a 4% withdrawal rate your first year of retirement and adjusting subsequent withdrawals for inflation.

But that rule was established at a time when bonds were paying more generously and life expectancies weren’t as long. These days, people are, thankfully, living longer, which means they need their savings to last longer. But because bonds aren’t paying the same amount of interest they were decades ago, and bonds are a common retirement investment, a 4% withdrawal rate could end up being too aggressive.

If you don’t want to run the risk of depleting your nest egg, you may want to stick to an annual withdrawal rate of 2.5% to 3%. It’s a good idea to sit down with a financial advisor to land on a more targeted rate for you, though. An advisor can look at your assets, expenses, and other factors to help you come up with a good number.

It’s great to have a lot of savings going into retirement. But make a point to withdraw from your savings mindfully so the money you’ve worked so hard to accumulate doesn’t run out.

Our best stock brokers

We pored over the data and user reviews to find the select rare picks that landed a spot on our list of the best stock brokers. Some of these best-in-class picks pack in valuable perks, including $0 stock and ETF commissions. Get started and review our best stock brokers.

We’re firm believers in the Golden Rule, which is why editorial opinions are ours alone and have not been previously reviewed, approved, or endorsed by included advertisers.
The Ascent does not cover all offers on the market. Editorial content from The Ascent is separate from The Motley Fool editorial content and is created by a different analyst team.Maurie Backman has positions in Target. The Motley Fool has positions in and recommends Target. The Motley Fool has a disclosure policy.

 Read More 

Tired of overspending at the supermarket? Read on to see why you may be prone to shelling out more money than expected. 

Grocery prices have moderated as inflation has cooled. Despite that, food costs were still up 2.4% in September, according to the Consumer Price Index. So if your supermarket credit card tab still seems higher than average, that could be a reason why.

But it’s probably not the only reason. The reality is that supermarkets have a sneaky way of convincing consumers to spend money they had no intention of parting with. Here are some of the tricks they tend to employ.

1. Housing essentials are found at the back of the store

Have you ever been to a supermarket where you can walk right in, grab a carton of milk, and leave? I haven’t. Whether it’s my local Shoprite, Costco, or Trader Joe’s, I find that the dairy aisle — which I pretty much always tend to need — is located at the back of the store.

And it’s not just the dairy aisle. At my local Costco, you have to pass through the snack and bakery sections just to get to the produce. And when you’re specifically seeking out a giant bag of broccoli, it’s easy enough to get tempted to buy some cookies or muffins along the way to offset such a healthy purchase.

2. Offering discounts that only apply to multiple purchases

It’s common for grocery stores to put items on sale at different intervals. But one of the sneakiest techniques they tend to employ is to limit that discount to customers who buy the same item in multiples.

For example, let’s say pasta is normally $1.25 a box at your local supermarket. You might see it marked down to five for $5 — if you buy five. If you only buy three, you’re still paying $1.25 a pop.

What I’ll commonly do in that situation is buy the five. But if I didn’t need five, it meant the supermarket won by getting more of my money.

3. Placing impulse items near the register

Have you ever noticed that you won’t find whole wheat rolls or canned beans near the cash register when you go to check out at the supermarket? Nope — instead, you’ll commonly find king-sized candy bars, soda, and other such fun items that magically fit in your purse so you can scoop them up at the last minute without worry.

Not only do these impulse items tend to drive people to spend more at the supermarket, but they’re generally among the least competitively priced. So all told, you’re losing out — even if you do enjoy that mega-sized Twix.

4. Changing the layout regularly

I visit my local Shoprite several times a week, so at this point, I’m more than familiar with its layout. That’s why I tend to get annoyed when I notice items being moved to different aisles.

I used to think stores did that as a means of maximizing space. Now I’m convinced that they do it to confuse customers and get them to wander around more in search of the things they need.

Think about it. Let’s say you buy cereal at the supermarket once a week, only the cereal aisle gets moved. Suddenly, you’re forced to pass through several new aisles to find your box of Cheerios. That could result in more items getting thrown into your cart.

Clearly, supermarkets are pretty adept at tricking shoppers into spending more than intended. So now that you know this, fight back.

Make a grocery list before heading to the store and stick to it. And eat something, even if it’s just a light snack, before you shop so your stomach isn’t grumbling the entire time and you’re not tempted to buy two giant Hershey bars on your way out the door. The simple act of not being hungry could result in a lower credit card tab the next time you hit the store.

Alert: highest cash back card we’ve seen now has 0% intro APR until 2025

If you’re using the wrong credit or debit card, it could be costing you serious money. Our experts love this top pick, which features a 0% intro APR for 15 months, an insane cash back rate of up to 5%, and all somehow for no annual fee.

In fact, this card is so good that our experts even use it personally. Click here to read our full review for free and apply in just 2 minutes.

Read our free review

We’re firm believers in the Golden Rule, which is why editorial opinions are ours alone and have not been previously reviewed, approved, or endorsed by included advertisers.
The Ascent does not cover all offers on the market. Editorial content from The Ascent is separate from The Motley Fool editorial content and is created by a different analyst team.The Motley Fool has a disclosure policy.

 Read More 

Opening an IRA in your early 20s could set you up with a ton of wealth in your 60s. Read on to learn more. 

Many people spend their 20s paying off the debt they incurred in college and struggling to cover their bills on an entry-level wage. Saving money for near-term goals can be tough during that decade of life. And saving for far-off milestones, like retirement, can be even tougher.

Recent data from Northwestern Mutual finds that the average 20-something has $35,800 saved for retirement. So this tells us that saving for retirement in your 20s is possible, even though it may be difficult. And if you’re able to push yourself to start saving for retirement in your early 20s, you might end up with a whopping pile of cash by the time you’re ready to close out your career.

It pays to get started investing as early as possible

By age 22, many people are out of college and working full-time jobs. If you happen to land in that boat, one of the best moves you can make is to open an IRA and start making consistent contributions to that account. It doesn’t have to be 10% or 15% of your paycheck, though. You probably can’t swing that, which is both understandable and OK. Saving even $100 a month in your 20s could go a long way.

Let’s say you begin funding an IRA at age 22 to the tune of $100, and you never manage to increase that monthly $100 contribution in your lifetime due to increasing expenses. Let’s also assume you retire at age 67 and the investments in your IRA generate an average annual return of 10%, which is consistent with the stock market’s average return over the past 50 years. In that case, you’ll be looking at an IRA balance of about $863,000 going into retirement.

Northwestern Mutual, meanwhile, reports that the average retirement saver in their 60s has a nest egg balance of $112,500. So if you’re able to retire with $863,000, you’ll be way ahead of the typical new or near-retiree today.

It’s also worth pointing out that saving $100 a month over 45 years means putting a total of $54,000 into your IRA. The reason you’re able to turn that small sum into $863,000 is compounded returns.

When you invest your savings, you earn a return on that money every year. You can then reinvest that return so that over time, your wealth grows a lot. Remember, with an IRA, you receive more tax benefits than a regular brokerage account. So that makes it easier to grow wealth.

Push yourself to open and fund an IRA

Unlike 401(k) plans, which hinge on working for an employer that offers one, you can open an IRA on your own as long as you have earned income. So if you’re new to full-time work, one of the smartest things you can do is open an IRA early on and set up an automatic monthly contribution to that account, even if it’s just a small one. Committing to that early on could leave you wealthy by the time retirement rolls around.

Our best stock brokers

We pored over the data and user reviews to find the select rare picks that landed a spot on our list of the best stock brokers. Some of these best-in-class picks pack in valuable perks, including $0 stock and ETF commissions. Get started and review our best stock brokers.

We’re firm believers in the Golden Rule, which is why editorial opinions are ours alone and have not been previously reviewed, approved, or endorsed by included advertisers.
The Ascent does not cover all offers on the market. Editorial content from The Ascent is separate from The Motley Fool editorial content and is created by a different analyst team.The Motley Fool has a disclosure policy.

 Read More 

The IRS just announced the inflation adjustments to several key tax figures. Find out what it means for you. 

Every year, the IRS makes inflation adjustments to the U.S. tax brackets to make sure the rates are applying to the same amount of spending power. The 2024 figures were just announced, and because inflation remained at a historically high level throughout 2023, the income ranges that correspond to each marginal tax rate are increasing substantially for the 2024 tax year.

Here’s an overview of the 2024 U.S. tax brackets for different filing statuses, how the tax brackets really work, and most importantly, why your taxes could actually go down in 2024.

Single filers

Married filing jointly

Heads of household

Married filing separately

How the tax brackets work

First, the numbers in the tables above refer to taxable income, which is different from your gross, or total income. Your taxable income is the amount of money that is left after applying any adjustments and deductions to which you are entitled. For example, if you are single and earn $100,000 in 2024, have a $7,000 deduction for retirement contributions, and use the $14,600 standard deduction, your taxable income would be $78,400.

Second, these are marginal tax brackets. Consider the above example of a single individual with $78,400 of taxable income. Based on the tax brackets for single filers in the chart, their tax would be calculated as follows:

10% of the first $11,60012% of the amount between $11,600 and $47,15022% on the portion of taxable income that exceeds $47,150

2024 standard deduction

In addition to the changes to the tax brackets, the standard deduction is increasing as well. For married couples, the 2024 standard deduction is rising to $29,200, a $1,500 increase compared with 2023. For singles and heads of household, the 2024 standard deduction will be $14,600 and $21,900, respectively.

Many other significant tax items are also adjusted annually for inflation, such as the maximum earned income tax credit (EITC) and the Alternative Minimum Tax exemption, both of which are rising significantly as well.

Why your taxes could go down in 2024

As the IRS does every year, it adjusted the 2024 tax brackets upward to compensate for inflation, which remained high for yet another year. And for many people, this could mean a lower tax bill.

If your income has roughly kept pace with inflation, the idea is that there should be a minimal (if any) change to your effective tax rate. But the reality is that many incomes didn’t. If your income has not, you could see your federal income taxes go down in 2024 because of the higher income ranges that correspond to each marginal tax rate.

Consider this example. Let’s say that you are married and earn $100,000 in 2023. You claim the 2023 standard deduction for married couples filing jointly ($27,700), which brings your taxable income down to $72,300. I’ll spare you the math, but based on the 2023 tax brackets, you would owe $8,236 in federal tax for 2023.

Now, let’s say that you earn $100,000 again in 2024. For one thing, the higher 2024 standard deduction would reduce your taxable income to $70,800. And the generally more favorable tax brackets would mean that you owe $8,032, or over $200 less than in 2023.

A silver lining if your wages stay constant

To be perfectly clear, I hope that your income increases along with inflation and then some in 2024. But if that’s not the case, the point is that you could see some tax relief. And finally, it’s important to note that these changes are all for the 2024 tax year — that is, the tax return you’ll file in 2025.

Alert: highest cash back card we’ve seen now has 0% intro APR until 2025

If you’re using the wrong credit or debit card, it could be costing you serious money. Our experts love this top pick, which features a 0% intro APR for 15 months, an insane cash back rate of up to 5%, and all somehow for no annual fee.

In fact, this card is so good that our experts even use it personally. Click here to read our full review for free and apply in just 2 minutes.

Read our free review

We’re firm believers in the Golden Rule, which is why editorial opinions are ours alone and have not been previously reviewed, approved, or endorsed by included advertisers.
The Ascent does not cover all offers on the market. Editorial content from The Ascent is separate from The Motley Fool editorial content and is created by a different analyst team.The Motley Fool has a disclosure policy.

 Read More